News & Insights

Normal notice resumed

Ian Machray outlines new legislation in relation to furloughed employees’ entitlement to full statutory redundancy pay and notice pay.

Employees with more than two years’ continuous service who are made redundant are usually entitled to a statutory redundancy payment, based on their length of service, age, and pay (subject to a weekly cap of £538), up to a statutory maximum.

During the COVID-19 pandemic, some employers have sought to rely on the furlough scheme in order to justify paying statutory redundancy payments based on reduced furlough wages.  However, following an introduction of new legislation that came into force on 31 July, employers are required to calculate various statutory payments, including redundancy pay, with reference to an employee’s weekly pay disregarding any reduction in pay resulting from the furlough arrangements.  This means furloughed employees who are made redundant will now receive statutory redundancy pay based on their normal wages (subject to the weekly cap of £538), even if they were receiving 80% of their wages since March.

The legislation has also clarified that employers must now calculate notice pay without any reduction relating to furlough rates.  As notice pay is not subject to any statutory cap this is likely to have a more significant impact on employers.

The good news for employers is that the new legislation provides some clarity with regard to calculation of the statutory payments.  Employers should also remember that any additional or enhanced redundancy pay stipulated in individual employment contracts will continue to apply in accordance with ordinary employment laws.  Employers who made redundancies before 31 July will not be retrospectively covered by the new legislation, however they may wish to review any redundancy payments made as the legislation is likely to increase scrutiny by employees in the coming weeks if furlough rates were used to calculate their entitlements.